Lawyer: Approval for criminal trial fees was for a different hedge fund than the one ex-broker used

NEWPORT NEWS — Last December, a lawyer hired by Jeffrey A. Martinovich determined that the former Newport News financial broker could use money from investors to pay the legal fees to defend himself from federal fraud charges.

But there's one problem: That lawyer, Andrew Shilling, says he approved expenditures from a specific hedge fund account — but it wasn't the hedge fund that the former head of MICG Investment Management LLC actually used to pay those legal bills.

Late last year and early this year, during the lead up to his federal fraud trial, Martinovich used money from investors to pay $125,000 in fees for his defense attorney and at least another $34,000 in additional defense costs, according to court documents.

Federal agents discovered the bank account over the summer. In July, prosecutors began raising questions about the expenditures — both the legal fees and hundreds of thousands of dollars in additional expenses.

After prosecutors asked a judge in July to freeze the hedge fund's bank account, Martinovich's defense attorney, James Broccoletti, said all of the expenditures from the hedge fund account were valid expenses of running the fund.

As for the legal fees that were paid from the account, Broccoletti cited Shilling's December 2012 opinion as providing a proper basis for those expenses.

The account was used with written approval by attorneys representing the hedge funds "for the defense of the criminal case," Broccoletti wrote in a July court filing, attaching Shilling's opinion as an exhibit to back his argument. "The funds were expended after the attorney representing the funds approved their release."

In September, Broccoletti told the Daily Press that he was informed early on that his defense fee would be paid from a hedge fund bank account. "I quoted (Martinovich) a fee ... (but) I didn't know where the money was going to come from to pay the fee until (Shilling) called me to say this is what we are planning to do," Broccoletti said.

He said he was OK with that, given Shilling's written approval. "I've got to put faith and reliance on the lawyer's opinion," Broccoletti said.

Opinion was 'specific'

According to court documents, Martinovich was paying the bills from the MICG Partners LLC hedge fund. But Shilling, of Chesapeake, says his December 2012 opinion pertained only to a separate hedge fund, MICG Venture Strategies LLC.

In an interview with the Daily Press, Shilling said he did not review any MICG Partners documents. Therefore, he said, his opinion cannot be properly read to mean that he gave approval to spend Partners fund money.

"I was asked a specific question, and I gave a specific answer," Shilling said. "My email opinion speaks for itself … My client was MICG Venture Strategies. Any suggestion that I have given an opinion on something other than what's contained in that letter, I think would be incorrect."

The two MICG hedge funds are closely related in that the Partners fund holds a large stake in the Venture fund. Moreover, both fund's operating documents contain identical language on providing legal protections to employees.

Still, Shilling said he "wouldn't be in a position to give an opinion on (spending from the Partners fund) because I don't know the facts."

When told of Shilling's statements, Broccoletti said he had a separate opinion letter in his Norfolk office from a Florida attorney signing off on legal expenditures from the Partners account.

At the time, Broccoletti was out of town and said he did not recall the name of the lawyer who wrote that letter. But he said he would provide a copy of the letter to the Daily Press when he returned to work this past Wednesday.

In an abbreviated phone conversation on Thursday, however, Broccoletti said he would not provide the newspaper with the letter.

Shilling's involvement began in October 2012, when Martinovich hired him to weigh in on whether it was OK to use money in the MICG Venture Strategies hedge fund account to pay for his trial defense. (Most of the 25 federal charges that Martinovich faced were related to allegations of wrongdoing pertaining to the Venture fund).

On Dec. 12, 2012, Shilling — who was paid $1,500 for his efforts — wrote back with a single-page opinion saying the Venture fund was obligated to pay Martinovich's defense costs.

In arriving at that conclusion, Shilling cited a provision in the Venture fund's operating documents saying that the fund's employees shall be held "harmless" from damages "suffered and incurred" while "acting on behalf of the fund."

"I have reviewed the applicable case law and can find no prohibition against such indemnification or hold harmless clause being extended to criminal actions," Shilling wrote in the December 2012 opinion. "Accordingly, it is my opinion that the (Venture fund) is obligated, by the terms of the Agreement, to advance your legal fees."